UT ABCs of DCs Paper PDF

The ABCs of DCs
Distribution Center Management:

A Best Practices Overview
a Report by the Supply Chain Management Faculty
at the University of Tennessee
February 2015
GLOBAL SUPPLY CHAIN INSTITUTE
Sponsored by
Number Five in the series | Game-Changing Trends in Supply Chain

managing risk in the global supply chain 1
The ABCs of DCs Table of Contents
Distribution Center Management: Introduction 3
A Best Practices Overview Receiving and Put Away 4
Picking/Order Fulfillment/Shipping 7
Lean Warehousing 13
Cross Docking 17
Metrics and Planning 19
Warehouse Information Systems 24
Layout and Space Optimization 30
Network Optimization 33
Safety and Security 35
People 39
Sustainability 42
DC Evaluation Tool 44
2 managing risk in the global supply chain

The ABCs of DCs
Distribution Center Management:
A Best Practices Overview
The Fifth in the Game Changers series of University of tennessee
supply chain management white papers
February 2015
Author:
J. Paul Dittmann, PhD
Contributing Editors:
Lloyd Rinehart, PhD
Ted Stank, PhD
Chad Autry, PhD
Mike Burnette
At the university of tennessee

Haslam College of Business
The Game-Changers Series of University of Tennessee
Supply Chain Management White Papers
These University of Tennessee Supply Chain Management white papers can
be downloaded by going to the Publications section at gsci.utk.edu.
Bending The Chain

The Surprising Challenge of
Game-ChanGinG Trends in Supply Chain Integrating Purchasing and Logistics
First AnnuAl report by the

a RepoRt by the Supply Chain ManageMent
supply ChAin MAnAgeMent FACulty
FaCulty at the univeRSity oF tenneSSee
At the university oF tennessee
Spring 2013
SPrIng 2014
310 stokely MAnAgeMent Center

knoxville, tn 37996
865.974.9413
globAlsupplyChAininstitute@utk.edu
sponsored by
Globalsupplychaininstitute.utk.edu 310 Stokely ManageMent CenteR
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Number two iN the series | Game-ChanGinG Trends In SuPPLy ChaIn
Global Supply ChainS

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global supply Chain FaCulty at the univerSity oF tenneSSee
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Number three iN the series | Game-ChanGinG Trends in supply Chain Number Four iN the series | gAme-ChAnging trends in supply ChAin
2
Introduction
L ogistics professionals who operate distribution centers (DCs) have

a tough job. Management constantly challenges them to cut cost,
which means doing more with less. While focused on that, they need
to make sure that customer responsiveness does not suffer and even
improves. Clearly this calls for a highly advanced management skill set.
This white paper draws on data from three sources. The first is information
gleaned from the supply chain audits done at the University of Tennessee. The
second is from third party logistics professionals who manage extremely large
warehouse networks for very demanding clients. Finally, the third set of inputs
was drawn from industry supply chain professionals with extensive warehouse
management responsibilities. The companies included some of the largest
retailers in the world, prominent manufacturers, and 3PLs.
Eleven themes emerged from this research and are covered in the white paper:
1. Receiving
2. Picking/Order Fulfillment/Shipping
Logistics 3. Lean Warehousing
professionals who operate 4. Cross-Docking
DCs have a tough job. 5. Metrics and Planning
Management constantly 6. Warehouse Information Systems
challenges them to cut cost, 7. Warehouse Layout and Space Optimization
which basically means 8. Warehouse Network Optimization
doing more with less. 9. Safety and Security

10. People
11. Sustainability
For each theme, we include a short discussion of best practices for supply chain
professionals to consider as they develop a DC management strategic plan. Clearly
DCs come in many shapes and sizes, from case picking to individual item, highly
automated to mainly manual, small in square footage to just plain huge. To cover
this scope in one white paper is daunting, but the best practices described
below are intended to apply to the broadest possible range of DC types.
managing
Introduction: risk in the
distribution global
center supply chain
management 3
5
Receiving and Put Away
A
ll warehouses need an efficient process to receive and put away or
cross dock goods. (Cross docking is discussed in its own section
later.) The receiving and put-away processes critically affect
overall warehouse efficiency.
Receiving
At the most basic level, vendors that ship into distribution centers need to be
reliable. Suppliers must be certified so that quality and accuracy are assured.
Inspection and count verification required at the DC should be minimal. Suppliers
should also have the capability of sending advanced shipment notices (ASNs)
before their shipments arrive.
World-class receiving is highly facilitated by the use of advanced shipment

notices. An ASN notifies the DC of a pending delivery and is usually sent in an
electronic data interchange transmission. Suppliers use ASNs to list the contents
of a shipment as well as additional detailed information describing the shipments
composition and configuration. By receiving the ASN before delivery, receiving
cost can be reduced and accuracy improved. Advanced shipment notices make
labor planning much easier since DCs know what will be hitting their docks
before it gets there. It should be noted that many manufacturing companies
receive product from their own factories to their own DCs. In that case, the
internal systems can be linked, accomplishing the same thing as an ASN.
4 Receiving and put away

Advanced shipment notices eliminate most data entry, and data entry errors,
at the time of receiving. Distribution centers receiving operations can do quick
scans of barcodes on shipping labels and electronically match them to the ASN
information. Generally an ASN provides a list of all the barcoded identification
numbers of the shipment contents. This improves inventory accuracy and
greatly reduces receiving costs. Cost reduction estimates are in the 4050
percent range.
In addition, the advanced shipping notice can be used to pay suppliers directly
for goods received by inputting the notice into the companys enterprise
resource planning system, which includes the accounts payable system. Any
discrepancies can be quickly transmitted to the supplier and corrected, so
payment can be executed in a timely manner.
The use of advance shipment notices is clearly a best practice. ASNs have been
around for decades and one would think they would be nearly ubiquitous by
now. Unfortunately, that is far from true. Progress is being made, but shockingly
some of the largest and most prominent companies still have not fully imple-
mented ASN technology in their finished goods distribution centers. One major
retailer told us that 30 percent of their inbound shipments had an ASN, with the
The receiving major constraint being the capability of their suppliers. Another major retailer
said that their suppliers could provide ASNs, but their internal systems could
and put-away processes not handle them. ASN technology is far more common in factory operations for
the receipt of raw material and less common in finished goods DCs.
critically affect overall
warehouse efficiency. Put Away
A modern warehouse management system should provide exact direction for
put away. Goods should be placed in the best locations to facilitate picking (see
profiling/slotting discussion later), and they should be placed in warehouse loca-
tions to minimize the travel distance and time of distribution center personnel.
Best practice distribution centers put away product quickly. Companies should
measure dock to stock time to help facilitate this process. Slow put away
negatively affects space, causes congestion, increases transaction errors, and
makes product more susceptible to damage. The most efficient DCs move
product directly from receipt to the final location. Direct put-away programs
require a good warehouse management system that can assign locations from
an advanced shipping notice or upon receipt to the dock.
Best practice companies also use integrated engineering standards in their

warehouse management system (WMS) and pick locations and replenishment
areas so that an optimal put-away route from receiving to storage areas can
be selected. Many WMS programs also support task interleaving so that put-
away and picking operations can be performed in tandem to greatly reduce
nonproductive travel time.
managing risk inReceiving

the global
and
supply
put away
chain 5
Returns
Returned products need to be received as well. With the panindustry race
to make returns easier and more customer friendly, as well as the increase in
Internet sales, DCs can expect returns to increase substantially. Of course, many
supply chain professionals believe that the best practice is to eliminate returns
or at least returns back to the DC. This is generally done by offering a return
allowance in order to incentivize the retailer to deal with returns. Alternatively,
some firms farm out handling returns to a company that specializes in it, like
Inmar. Other companies feel that the customer relations risk requires returns to
be handled in-house. Ironically in many such cases, returns are often treated as
an afterthought and managed in a highly disorganized way. When it comes to
managing returns, many companies leave a lot of money on the table. A little
attention here can pay big dividends.
A recommended process for managing returns

n Identify root causes of returns.
n Measure the full cost of returns, which most companies grossly

underestimate.
n Review product design, packing, and consumer instructions.
n Manage better customer education and expectations on the front

end of the purchase.
n Segment returns with a different approach for each category.
n Develop an operations plan to minimize the processing cost.
n Put in place a liquidation plan to maximize asset recovery; a decision

tree framework is often useful.
6 Receivingrisk
managing andinput
theaway
global supply chain
Picking/Order Fulfillment/Shipping
A
ggressive distribution center productivity goals cannot be met
without an efficient process for picking or order fulfillment. In fact,
picking often consumes the lions share of DC labor. Based on our
statistics, warehouse labor is consumed in the following manner:
Receiving and put away 24%
Order picking 54%

Truck loading 4%
Packing/packaging 4%
Other 14%
To optimize warehouse efficiency, the DC needs to focus on and minimize three

things: travel distance, touches, and paper. The best picking systems have low
rates of each. Of course reducing travel distance is critical, and creativity is
helpful. For example, one company told us that it installed forty-five degree
aisles in their distribution center and saved a major amount of time by traveling
the hypotenuse.
In our discussions with supply chain professionals, we saw a wide variety of
ways companies fill orders efficiently. Of course many small DCs have not aban-
doned paper pick lists. But whether done with paper or with the technologies
described below, a key to efficient picking is proper profiling or slotting.
Warehouse space optimization and layout closely relate to profiling, and they
are also fundamental to an efficient picking operation. We discuss this theme
in its own section later in the white paper.
Profiling/Slotting (Zoning or ABC Zoning)

It goes by various names, but regardless of the moniker, its a prerequisite to
efficient fulfillment operations. Many DCs dedicate full-time personnel to the
task of profiling or slotting. Their job is to ensure that high velocity SKUs are
placed in convenient, easy to reach areas to minimize pick times. They do this
by studying the velocity of each SKU stored in the DC, often with the assistance
of their warehouse management systems. Studies have shown that travel time
is three times more impactful than search and selection time, although both are
important and both are facilitated by a good profiling system. Warehouse layout
and picking are closely connected; in fact, a primary goal of warehouse layout
is to facilitate picking.
managing
Picking/order
risk in thefulfillment/shipping
global supply chain 7
Profilers know that it costs more to pick vertically above the floor than hori-
zontally on the floor. So the fastest moving items are assigned to floor level.
Hot zones are set up for fast moving SKUs to increase picking productivity.
High cube items are often assigned to racks, while low cube, smaller items are
assigned to bins or shelves.
We saw a good example of a profiling operation at an office supplies retailers

distribution center. They dedicated three people to ensuring that the right SKUs
are in the right places. They use a feature in their warehouse management
Aggressive DC
system to assist in this effort. Others use special slotting or profiling software.
Such software can be configured to physically separate error-prone items where
productivity goals cannot pickers tend to mix items if slotted too close together. A cosmetics manufacturer
has five rows of items in its pick area. It puts the highest volume lipstick in row
be met without an efficient
three at eye level, but separates similar colors to avoid pick errors. An appliance
process for picking or order manufacturer calls their version of profiling ABC banding, which ensures
that they put the highest volume appliance SKUs closest to the outbound
fulfillment. In fact, picking
truck docks.
often consumes the lions
As noted, profiling should be done on a dynamic basis with the aid of the ware-
share of DC labor. house management system. There should be no permanent locations, given the
frequent changes. One caveat: fast moving items should be easy and fast to
pick. But they may have to be spread out to minimize congestion problems.
Picking Systems
One of our recent surveys found that firms used the following types of picking
systems.
n Radio frequency vehicle mount - 80%
n Paper pick list 40%
n Pick to light 38%
n Carousels/conveyor systems 25% Many DCs

use multiple
n Voice picking 5% picking
approaches
n A frame 5%
n Automated storage and retrieval systems 5%
n KIVA 1%
n Other 22%
Voice Picking
Some call this the greatest gain in picking in the past twenty-five years,
while others are much more subdued in their enthusiasm. With voice picking,
operators wear a small portable computer with a headset incorporating a
microphone. They receive verbal commands via the headset and confirm
actions though the microphone to the warehouse management system.
10
8 Picking/order
managing risk infulfillment/shipping
the global supply chain
When it comes to accuracy, voice picking wins, because the operator reads a
check digit back to the computer to confirm the right pick was made. Error
rates of less than one per thousand picks have been reported. Other picking
technologies are accurate, but if you go from 99 percent accuracy with one
method to 99.9 percent accurate with voice, you avoid 9,000 errors per million
picks. This can clearly be significant for some products and customers.
Voice systems can speed up the learning curve for new warehouse employees
as well. One firm told us that the time between on-boarding and full efficiency
went from five weeks to five days when they converted to a voice system.
Installing a voice-picking system requires a significant investment, perhaps

$5,000 per unit. So voice picking is most appropriate in a larger facility with
a significant number of people. To generate a high enough ROI on those sunk
costs, a rule of thumb would be forty to fifty workers using the system.
Voice picking is hands free and therefore also contributes to safety. It can
employ multiple languages within the same warehouse, which is beneficial to
US operations in areas with a high Spanish language population. Having native
language capability can clearly enhance operator productivity. The voice speed
in the headset can also be set very fast as operators become accustomed.
Although high-speed voice seems incomprehensible to rookies, highly experi-
enced operators quickly adjust to it.
Pick to Light
With pick to light, stock locations have light nodes connected to the main com-
puter system. These light up indicating which units to pick. When the associate
completes the pick, he or she presses a button next to the light to confirm it.
If applied in the right setting, pick-to-light systems are faster but not as accurate
as voice. For small items, especially in small slots, someone could touch the
light but reach into the wrong slot. This can happen an estimated three times
in every 1,000 picksat least three times higher than voice picking. Weight
check systems at the end of the pick can help catch such errors.
Of course, speed depends on the right application. Pick to light works best for
small, relatively fast-moving items where a picker can simultaneously see all
items to be picked for an order, rather than be given instructions sequentially.
It is not as useful for case picking or picking a wide range of larger product
sizes/weights. Pick-to-light systems can require expensive conveyors, challenging
their ROI.
Radio frequency
In wireless radio frequency picking environments, the associate generally has
radio frequency gun that can be holstered. Radio frequency/scanning is highly
accurate but not perfect. Sometimes an operator can take his or her eyes off
the picking location when the scanner is being returned to the holster. Items
managing
Picking/order
9
and pallets are scanned, and that is matched to a scanned location to enhance
accuracy. Voice and pick-to-light systems are more productive and more
accurate than radio frequency. Radio frequency pickers spend an estimated
15 percent of their time manipulating the radio frequency gun.
Automated Picking
(A-frame or automated storage and retrieval systems)
A-frame picking systems have bins or totes that flow on a conveyor through a
stocked A-frame. Based on the bar code, the right units fall into the tote as it
passes under the A-frame. A-frames are generally used for small items.
Automated storage and retrieval systems can be several stories tall and totally
automated. A robot-like device moves through the high-rise warehouse picking
the appropriate units from the warehousing racks.
Automated systems require a major capital investment. So without a long

contract in place, 3PLs find these systems are problematic.
Goods-to-Person Picking (KIVA)

With KIVA, a wholly owned subsidiary of Amazon, robots bring the product to
the person assembling the order. A rule of thumb is that at least 50 percent of
picking time is operator travel time, often much more. These systems eliminate
operator travel time. A number of companies other than KIVA now offer goods-
to-person robotic systems. These are expensive. An operation would have to be
a large, high volume facility often involved in each pickingpicking individual
units, not cartonsfor this technology to pay off.
Robotics and AGVs

Robotics are becoming more feasible as technology advances; they can do
basic picking and other operations. For example, hourly associates can easily
program Baxter robots from ReThink Robotics. They are relatively low cost at
about $25,000. And, if they can replace a full-time employee, the ROI should
be quick.
Automated guided vehicles (AGVs) are another form of robotics. In the original
models, the units followed a wire embedded in the floor. Newer AGVs can be
laser guided. Mirrors and laser beams continuously tell the vehicle where it is.
Some newer AGVs accomplish this with location bar codes around the DC,
along with a camera/optical recognition system.
Manual/Paper Based Systems

These are the least accurate and the least productive systems. But a paper-
based system may make perfect sense for many small operations, and there are
thousands of very small warehouse operations employing ten people or fewer.
10 Picking/order
Postponement Operations
Picking and order fulfillment will be heavily impacted by the trend toward
postponement. More and more orders will be kitted, packaged, given unique
identifiers like branding and literature, or lightly assembled. These capabilities
are driven by the vision of a low inventory, flow through environment, and they
will become increasingly common in the future e-fulfillment world. In both
postponement and other DC activities, packaging must be optimized to reduce
the waste, weight, and cube.
How to Select the Right Picking System

When deciding which picking technology to employ, several factors come into
play. Three of the most important are operating cost, accuracy, and capital
investment. Safety should also be considered along with product damage
potential. When calculating the ROI of various options, it is important to put a
number on hard-to-quantify items like safety or picking accuracy. Otherwise,
they tend to become nonfactors in the decision when in fact they may be
among the most important considerations.
To narrow options prior to doing an in-depth ROI analysis on the most viable
alternatives, create a matrix like the following and rate each cell:
Decision criteria Decision criteria Picking Picking Picking

weighting System A System B System C
Operating Weight Ranking Ranking Ranking

cost/productivity
Capital investment Weight Ranking Ranking Ranking
Integration with Weight Ranking Ranking Ranking

other systems
Accuracy Weight Ranking Ranking Ranking
Safety Weight Ranking Ranking Ranking
Damage Weight Ranking Ranking Ranking
Note that the table above has a column labeled Decision Criteria Weighting.
This forces the selection team to make hard decisions regarding their most
important needs in a picking system.
Once the options are narrowed to perhaps two or three picking systems using the
ranking process above, its time to gather hard data from vendors, probably through
an RFP process. After the cost/investment and benefits are accurately quantified,
an accurate ROI for each option can be calculated and the selection made.
managing
Picking/order
11
Omnichannel Picking
Omni-channel fulfillmentfrom Internet and mobile phones sourcesis
becoming increasingly common for manufacturers and retailers. The rise of
the omni-channel means that DCs can no longer batch all of their orders into
large waves that must be completely processed before taking on the next
wave of orders. Internet orders are filled in a waveless picking process. They
have to be filled very quickly, perhaps within a couple of hours, and often result
in difficult piece picking, exacerbated by seasonal spikes. It is further burdened
by a large number of SKUs and creates the need for increased inventory
control, flexibility, and fast, accurate fulfillment.
Instead of one large order to pick for a store or another warehouse, distribution
centers will have to ship hundreds of small orders to individuals all over the
country. Warehouse operators will have to become increasingly flexible in their
pick, pack, and ship operations. Speed, efficiency, and accuracy will be required
as never before. No doubt, creative automation approaches will emerge. More
and more large retailers are filling Internet orders out of retailstore locations
as well as their DCs. Software exists which determines the optimal ships from
location. The customer can get home delivery for an additional charge, or pick
up the order up at the store location.
Some retailers are partnering with services like Google Express to fulfill their
Internet orders. Google Shopping Express is a same-day shopping service
that was launched on a free, trial basis in San Francisco and Silicon Valley
in spring 2013 and publicly in September that year. In spring 2014 it was
expanded to New York and Los Angeles, and in fall 2014 to Chicago, Boston,
and Washington, DC. Google does not have any physical infrastructure, and
instead sends shoppers into existing stores.
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12 Picking/order
Lean Warehousing
L
ean concepts originated in the 1950s in Japan and developed and
matured in Toyota factories over several decades. The Lean philosophy
first reached the shores of the United States in the 1980s with a few
pioneering companies like John Deere and Harley Davidson. Then
it exploded into US manufacturing in the 1990s. From there, Lean concepts
escaped the confines of the factory. The Lean philosophy is now being used
throughout the supply chain, especially in warehouse operations.
Many firms, both retailers and manufacturers, are now aggressively rolling out
Lean in their warehouse operations. In the process they reduce cycle times,
speed up customer responsiveness, and reduce waste throughout their
operations. Huge paybacks are being seen with Lean implementations in
one warehouse operation after another. It is safe to say that if a warehouse
operation is not implementing Lean, it is falling behind its competition.
Many companies have their versions of Lean that closely follow its fundamental
principles, such as the Kenco Operating System or the Honeywell Operating
System. If the 3PL is running the DC operation, they will need to take the
first steps toward implementing Lean in the facility. Some examples of Lean
concepts commonly used in DCs are discussed below.
managing risk in the global

Lean Warehousing
supply chain 13
15
Keep it Simple
Dont over complicate this. The Lean journey should focus on straightforward
activities that everyone can see and understand. This means concepts like 5S,
total employee involvement, standard work, visual management, and manage-
ment walkabouts. This foundation can then lead to more sophisticated concepts
such as value-stream mapping. Lean is a lot about total employee involvement
in a continuous improvement effort. So, DCs shouldnt rush to implement
the Lean tools. Sometimes the tools take on a life of their own, causing the
operation to lose sight of the simple goal of waste elimination. With that said,
some of the tools and concepts of Lean are described below.
5S
5S refers to a methodology and mindset that ensures that all areas are neat,
clean, with everything in its place. Although it varies, the five Ss usually stand
for sort, set in order, shine, standardize, and sustain. A number of warehouse
operations add a sixth S for safety. Few would argue with that. In fact, in most
warehouse operations, the warehouse manager is quick to say that safety is
Huge paybacks the number one priority and objective.
are being seen with Lean Total Employee Involvement

implementations in one The real secret of Lean is that it creates a learning organization that focuses
on continuous improvement or kaizen. Lean takes a full commitment from the
warehouse operation after
top and full involvement from the bottom. One company chose several lean
another. It is safe to say that champions from among the hourly associates in the DC and asked them to
if a warehouse operation gather improvement ideas from their peers. Those Lean champions also led
5 Why sessions. In these sessions, the problem is identified, and then the
is not implementing Lean, group asks why five times to reach its root cause. One firm has a simple form
it is falling behind its called a SPIN (simplified process improvement needed) form available for the
hourly associates to submit their suggestions. They said that this process starts
competition.
slowly but really takes off when people see their ideas being implemented.
Standard Work and Making Problems Visible

Some Lean advocates say that there can be no kaizen without standardization.
All work needs to be rigorously documented. That ensures continuity of
improvements and makes deviations more visible. The three-step process
of standardize, measure, and improve has standard work at its root.
Some have used the MOST system with success. The Maynard Operation
Sequence TechniqueMOSTis a predetermined motion time system that
is used primarily in industrial settings to set the standard time in which a
worker should perform a task.
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4 Lean Warehousing
managing risk in the global supply chain
Management Walkabouts
Some years ago, management by wondering around was all the rage and for
good reason. It worked. Managers need to get up, get out and about, and talk
to people face-to-face. Its the only way to understand the problems and the
mood of the organization. Its important to do this with a set of good questions,
such as Do you see anything we could do better? or Is your area ahead or
behind schedule? The millennials especially may need encouragement to give
up electronics and talk directly to humans.
Visual Management
Lean warehouse operations are visual operations, designed to promote employee
involvement. As one warehouse professional asked, How can you expect your
team to perform if they dont know the score? Lean operations visibly place
charts and graphs everywhere. Andon lights clearly show the status of mechanical
operations. One company mounted a large four by eight foot poster displaying
a fishbone diagram that focused on an inventory accuracy problem existing in
the warehouse. On the horizontal spine of the diagram was shown the problem,
i.e. inventory accuracy. On the diagonal bones of the diagram were listed general
areas that could be the source of the problem like systems or human error. All
associates were invited to use Post-it notes to comment on various aspects of
the problem.
Total Productive Maintenance

With total productive maintenance, associates who work with equipment are
also responsible for routine maintenance. This not only promotes employee
involvement and ownership but also reduces unexpected downtime. As one
associate said, Who knows more about how your car sounds: you or the
mechanic in the shop? Its the same with the equipment we use every day.
Its critical that conveyor systems and automation not break down unexpectedly.
Therefore, maintenance technicians should focus on predictive and preventative
maintenance, rather than routine maintenance. Routine maintenance should
be left to the equipment operators. Maintenance technicians should plan and
execute preventative maintenance activities during planned downtime. And
they should be using advanced techniques such as vibration analysis and
infrared analysis to detect problem areas, as well as hot spots that could predict
failure.
Eliminate Before You Automate

Automation is critical to large, efficient warehouse operations, but it can be
overdone. One company had an empty automated storage and retrieval system,

Lean Warehousing
supply chain 15
17
calling it the epitome of a monument to waste. They had found a way to flow
product through the warehouse without putting it in, and pulling it out of the
automated storage and retrieval systems. Another company eliminated the
need for an automated guided vehicle by simply moving the two material points
next to each other. An eliminate before you automate mindset avoids hardwiring
waste into an operation.
Value Stream Mapping

Value stream mapping helps identify value-added versus non-value-added
activities in a process. It is used as a vehicle to eliminate waste. It requires
visually mapping a process and then asking a group of employees/associates
to identify opportunities for improvement as well as non-value-added activities
to eliminate. Value stream mapping can ensure that there is quality at the
source and that there are no rework loops. It can be applied to any process and
almost never fails to identify savings of at least 20 percent or more, according
to the experts we polled. It is critical to include in the value stream the supply
chain steps both prior to the warehouse wall and after the warehouse wall.
The biggest losses can be in the handoff between supply chain activities.
Much like the fishbone diagram example above, one warehouse created a
four-by eight-foot map of their receiving process. Employees were encouraged
to place Post-it notes with their ideas for improvement as a lead in to the value
stream mapping exercise.
Office Operations
It should be noted that some DCs have applied Lean concepts in their office
operations, including standard work, visual management, and value stream
mapping. This could encompass anything from office proximity and printer
placement to checklists and work in progress boards.
Six Sigma
Six Sigma was never part of the Toyota Production System or Lean. It is instead
a separate set of tools and philosophies that nicely complement Lean. In fact,
many companies call their program Lean/Sigma or something similar. In many
companies Six Sigma simply means a measure of quality that strives for near
perfection. It is a disciplined, data-driven approach and methodology for elimi-
nating defects and variation in any process. A product of Six Sigma quality has
3.4 defects/variations per million or is consistent 99.9997 percent of the time.
The Six Sigma DMAIC system improvement process includes five steps for
processes falling below specification: define, measure, analyze, improve, and
control. Six Sigma has a similar methodology for projects in development called
DMADV (define, measure, analyze, design, and verify). Six Sigma black belts
learn to apply analytical and statistical techniques to business problems. In many
companies, they have established a track record of multimillion-dollar savings.
18
16 Lean Warehousing
Cross Docking
C
ross docking is the process of receiving product and shipping the
product out the same day without putting it into storage. Since
picking and put away consume the lions share of cost in a typical
warehouse operation, productivity skyrockets if those two activities
can be eliminated. The cross docking practice also frees up warehouse space
and speeds service to the customer. Some high volume warehouse operations
are designed to cross dock automatically. Wal-Mart DCs receive cartons from
suppliers and place them from the inbound truck into a high-speed conveyor
system. Many of those cartons continue to flow all the way down to a truck
waiting to go to a Wal-Mart supercenter. There is no picking or put away for
such items.
However, most warehouse operations dont have the luxury of super high
volume case flow like Wal-Mart. If they do cross dock, they have to do it the
old fashioned way: they schedule inbound delivery from their suppliers to
coincide with outbound delivery. Thats far easier said than done, and its far
easier if central control of orders and inventory exists. One retailer told us that
they cross dock about 40 percent of their goods using such a centralized
system. The corporate group has visibility to each inbound purchase order and
can dynamically allocate it to an outbound trailer when it arrives. At another
extreme, some pure cross-dock locations are set up as staging areas and are
not meant to carry inventory. These might be used to receive a full load from a
DC into a metro area and break it up at the cross dock into local delivery loads.

Cross
supply
Docking
chain 19
17
In general, a very small percentage of product is being cross docked today,
even though many warehouse managersup to two-thirdsreport that they
opportunistically cross dock to some extent. Distribution centers do not want to
tie up trailers, and especially tie up drivers, waiting for a cross-dock opportunity.
Many companies turn to their 3PLs to manage the cross-docking operations.
Others use a mixing center. A sophisticated warehouse management system
can help, but the most advanced technology is useless without a lot of
front-end work.
Companies can To execute a feasible cross-docking operation, companies need to lay the
and should get started by foundation with:
opportunistically cross 1. R
easonably predictable demandwithout knowing the demand,
docking without having sizing and staffing the operation are difficult.
2. Appropriate productsideally the product involved would have a
all elements perfectly in
single, efficient method of handling.
place. As firms look to make
3. Reliable, efficient supplierssuppliers must deliver complete orders,
the next big advance in DC on time, within narrow time windows. To do this, the customer must
give their suppliers a stable order pattern and ideally high volume,
productivity, cross docking
single SKU loads.
merits a very close look.
4. Expert service providersfast, reliable, consistent service is a must.
5. Advanced systemscross docking is facilitated by sophisticated
systems, including automated shipment notices, warehouse and
yard management systems, a cross-dock management system, and
track and trace capabilities.
6. Facility design and layoutinbound and outbound doors and
facilities should be designed to maximize efficiency.
7. Visibilityeasy access to current day inbounds and outbound allows
a DC to opportunistically match them when possible.
This daunting list requires a multi-year journey to realize the full benefits of
cross docking. That said, companies can and should get started by opportu-
nistically cross docking without having all elements perfectly in place. As firms
look to make the next big advance in DC productivity, cross docking merits a
very close look.
18 managing
Cross Docking
risk in the global supply chain
Metrics and Planning
Developing a DC Management Strategic Plan
T
he distribution center strategic plan needs to be consistent with
the overarching supply chain strategy. Unfortunately, our research
shows that only 16 percent of companies have a documented,
multi-year strategy for their supply chain. Paul Dittmanns book,
Supply Chain Transformation: Building and Executing an Integrated Supply
Chain Strategy, (McGraw Hill, 2013) sets out a nine-step process for creating
such a plan. Those nine steps, which have been slightly modified for DC
management, are listed in order below:
1. Start with your customers; understand their needs

2. Assess your internal warehouse capabilities versus best in class
3. E
valuate the DC management game changers (i.e. the topics in
this white paper)
4. Analyze your competitions warehousing capabilities
5. Survey DC management technology
6. M
anage risk by taking the time to identify, prioritize, and mitigate
the high priority risks facing your warehousing operations
7. Determine new DC management capabilities, and develop a
multi-year project plan to implement them
8. Evaluate the organization, people, and metrics
9. Develop the business case and generate buy-in
Metrics
Step eight in the strategic planning process includes choosing the best metrics
that will motivate a successful warehousing operation. In our surveys, supply
chain professionals from a broad range of companies used a scale of one to
ten, with ten the most important and one the least important, to rank the
following supply chain issues:
Implementing the right metrics and setting the right goals 8.15
Establishing collaborative relationships with suppliers and customers 7.91
Advances in supply chain visibility 7.80
Professional development, training, education 6.71
Helping with revenue generation 6.62
Managing the global supply chain 6.55
Effectively using technology 5.21

metrics supply
and chain
planning 19
The quest for the best metrics is clearly foremost in the minds of supply chain
professionals.
Make Sure Metrics Have a Logical Framework

Key performance indicators need to be linked in a logical framework to the
goals of the company. Otherwise, they are simply a laundry list of items with no
apparent logic. For example, if the prime goal of the firm is to drive shareholder
value, then a metrics framework should be established so that the organization
clearly sees how every measure flows into and drives shareholder value.
In developing new metrics to support the strategy, a set of criteria must be in

place to avoid poorly designed or seriously flawed metrics. For example, one
firm we worked with defined a set of criteria to design the new metrics for its
supply chain strategy. The metrics had to reasonably satisfy the following
criteria in order to be part of the key performance indicator framework:
n Stable and accurate data with few large, random, or unexplainable
swings
n Understandable to everyone, along with a line of sight, so that key
personnel can see how their actions influence the metric
n Designed so that they cannot be easily manipulated or gamed
n C
apable of drill-down analysis so that root causes of changes are apparent
KPIs need to n Clear cause and effect drivers
be linked in a logical n Easily accessible for relevant parties, and available in clear reports,
developed and published with clear explanations
framework to the goals of
These criteria served as a rigorous screen before a new metric was adopted and
the company. Otherwise,
ensured a small number of very high impact key performance indicators.
they are simply a laundry
Goal Setting and the Importance of Benchmarking
list of items with no
Selecting the right metrics and defining the associated responsibilities is import-
apparent logic. ant. Establishing goals is an entirely different matter. Too many companies only
use internal comparisons, this year versus last year for instance, and feel good
about achieving an internal goal. Leading companies benchmark best in class
performance and then set goals accordingly.
The Best Warehouse Metrics

We asked a wide range of distribution center management professionals their
opinion of the best metrics for warehouse management. The responses centered
on five areas safety, customer service (on time delivery, order cycle time, order
accuracy, and damage), cost and productivity, asset management, and people
development/morale.
20 metrics and
managing riskplanning
in the global supply chain
Safety
Safety, covered later as a separate theme, should be the number one objective of
any operation, and warehouses are no exception. Safety is a mindset reinforced
in many ways, many of which we discuss in the safety section below.
Safety is often measured as the number of incidents or recordables, lost time

accidents, times since the last accident, or near misses. Near misses are a very
valuable metric giving a leading indicator of recordables or lost time accidents.
To capture near misses, a firm has to rely on the commitment of its management
team and hourly associates to record a near miss in writing and submit it to the
system. Safety metrics should be highly visible to the entire workforce.
One company included safety metrics on the balanced scorecard of every

employee in the supply chain organization, including planning and inventory
management, not just the logistics operations people. This heightened the
awareness of the entire supply chain organization to safety issues.
Customer Service
Some organizations group customer service as part of their quality metrics
because failure to serve a customers needs is clearly a quality defect. Therefore,
customer service key performance indicators are ideally expressed in defects
per million. Ninety-nine percent good seems acceptable until one realizes it
represents 10,000 failures per million. Customer service metrics tend to be
focused on:
n Order accuracy and pick accuracy
n Damage
n Order fulfillment time vs. standard
n Incorrect paper work, including the invoice
n On time shipment, or on time delivery to a customers service window
The best practice is for customer service to be measured and reported by

the customer.
Cost
Cost metrics tend to be dominated by productivity measures, since labor
generally represents most of the facilitys operating cost. It is important to
break cost down into its main components: receiving, put away, picking, shipping,
maintenance, and management. Typical key performance indicators that
measure cost productivity are units or cases per man-hour, picks per man-hour,
managing risk in the

metrics
globaland
supply
planning
chain 21
cost per pick, cost per carton, through-put rates, et cetera. One firm said that
they measure cost per blended unit, where a blended unit represented one
item picked. It could be a case, or it could an each. Another firm said that they
moved to a cost as a percentage of sales. They did that in order to make sure
the logistics operation cared as much about sales and revenue generation as it
did about cost. Another best practice is to use a weighted average cartons or
units picked per hour, because all cartons/units were not created equal.
Time measures can also be quite powerful, such as time from order receipt to
fulfillment and then time to shipment. Also important is time from inbound
arrival to unload and time to put away.
One company found that productivity metrics alone drove an excessive invest-
ment in automation. Management remedied that by including the depreciation
cost of the automation in its total cost analysis.
Capturing and tracking cost metrics beyond direct labor is also important.
This includes items like indirect labor, contractors, overtime, and health care.
Some companies compare distribution centers in an ordered ranking by key

metric. While this is somewhat unfair since nothing is ever apples-to-apples,
it is still motivational. No one wants to be at the bottom of any such list, and
anyone at the top wants to stay there.
Since distribution centers are responsible for loading trailers, they assume the
burden of making sure that the equipment is as fully utilized as possible. One
retailer who rigorously manages cube utilization gets a 3,000 cube in the
average fifty-three-foot trailer (a trailer has 3,800 cubic feet of space). This
Leading very positively impacts transportation cost.
companies not only measure Asset Management

if the right inventory is in Assets consist of physical capital and working capital. Physical capital includes
warehouse space as well as the equipment, automation, and systems used
the building, but also if it
to operate the warehouse. Working capital consists mainly of inventory plus
is in the correct place in receivables minus payables. Maintaining accurate inventory is a critical
the building. responsibility of warehouse operations. Leading companies not only measure
if the right inventory is in the building, but also if it is in the correct place in
the building. On time delivery triggers the invoicing/payment process, and
therefore initiates the receivables process, receivables being a critical component
of working capital. Procurement, a supply chain function, manages payment
terms to suppliers, and therefore strongly influences accounts payable.
Therefore, supply chain has a major impact on all three buckets of working
capital: inventory, receivables, and payables.
22 managing riskplanning
metrics and in the global supply chain
People Development, Management, and Morale
The concept of a balanced scorecard means that qualitative metrics are also
critically important. These often come into play in the people development and
management area, which we cover in the People section in this white paper.
Some examples of important metrics to consider are:
n Evaluations completed
n Professional development plans in place
n Education and training completed
n Turnover and reasons for it (One firm estimated a $9,000 cost for
each hourly associate replaced, not counting the learning curve effects.
Turnover also is a good surrogate measure of morale.)
n High potential employee development plans completed

metrics supply
and chain
planning 23
Warehouse Information Systems
A
modern warehouse management system is critical to the efficient
management of any medium to large sized warehouse. One
large retailer even installed a warehouse management system in
their retail stores backrooms, especially after the supply chain
organization assumed responsibility for moving product to the retail shelf.
While this may sound like gross oversimplification, essentially warehouse
management systems improve productivity by minimizing movement in the
warehouse. The idea is to reduce operator and equipment movement as much
as possible to minimize the cost and number of people required to run the
warehouse. This arguably leads to an even more important result, namely a
speed up of customer order fulfillment times.
Warehouse Management System Functionality

To choose the correct WMS, the needed functionality must be identified first.
Some of the most common capabilities of warehouse management systems and
common bolt-ons are:
Goods receipts. The best practice is to match the advanced shipment

notification with the bar codes, often using a handheld device. The system then
indicates the best location to store the goods and should also trigger the
vendor payment cycle. In FDA-compliant facilities, during the goods receipt
24 Warehouse
managing riskInformation Systems
process there is an additional step of quality control. Inbound loads are
inspected to ensure that they are not damaged, have the proper labeling, are
released from the customer for storage, and meet expiration date business rules.
Put away. The system optimally routes any lift truck vehicles, as well as
operators on foot to minimize distance traveled. The system helps consolidate
locations during the put-away process and optimizes space utilization by
ensuring SKUs are placed in locations that need to be topped off instead of
choosing a new empty location. It optimally places the SKU in a location that
supports velocity movement and considers any promotional or substitution
business rules in deciding where to place SKUs in the DC.
Profiling or slotting. The warehouse management system can analyze

SKU movement velocity and recommend where to place SKUs in a warehouse
to minimize picking requirements and congestion.
Picking. The warehouse management system can ensure that movement is

minimized in picking an order. It interfaces with, and drives, any picking
technologies. The WMS allows for multiple orders to be picked simultaneously
to minimize operator travel distance, and this practice is referred to as task
interleaving. Task interleaving can combine put-away tasks with picking tasks.
For example, a driver has a put away of SKU A on Aisle X and there is an order
for SKU B that is also on Aisle X. Task interleaving would immediately give the
picking task to the driver as soon as he confirmed the put away, allowing him
to stay in the same area.
Shipping. A final check matching data in the warehouse management system

should be made at the dock to ensure 100 percent accuracy in the shipment.
Some warehouse management systems, or associated bolt-ons, have a
capability to optimize trailer loading or facilitate loading, particularly in a
multistop environment.
Real time visibility into inventory and orders. The warehouse

management system interfaces with the enterprise resource planning transac-
tional system to provide real time visibility of inventory and orders.
Labor management. Labor management systems are often embedded

in, or bolted onto, the WMS. Labor management software reports on the
performance of individual associates against discrete standards or goal times
for tasks in the distribution center. A labor management system can analyze
historical data for an accurate estimate of warehouse throughput. Then it can
schedule the right balance of overtime, as well as regular and temporary labor,
required for shifting demand patterns.
Yard and dock management. The warehouse management system and

yard management system direct inbound trailers to a particular dock door to
minimize receiving and put-away time. Outbound trailers are called to docks
as they are needed, based on pre-established priorities. Trailers are checked
managing
Warehouse
risk in theInformation
global supply
Systems
chain 25
into and out of the yard, and sealing and unsealing of equipment is monitored.
All yard stock should be visible. Some yard management systems utilize active
radio frequency ID tags to quickly identify what is inside a truck and where the
trailer or container is located. The WMS/yard management system can allow
only authorized personnel to use gas pumps, and then record the amount of
fuel pumped. It can interface with electronic seals and send an alert if a seal has
been broken.
Cross docking. With a cross-docking capability, inbound loads are matched

with outbound deliveries and cross-dock opportunities are dynamically and
opportunistically detected.
Inventory cycle counting. Routine cycle counting is managed to achieve
excellence in inventory accuracy. Warehouse personnel are directed to count
SKUs on a rotating basis throughout the year. Sophisticated cycle counting
systems have different rules by SKU family (i.e. fast movers are counted on a
more frequent basis).
Integrated with enterprise resource planning system. Integration

provides a seamless transfer of order data to the warehouse management
system, and a transmission of shipment and inventory data to the enterprise
resource planning system.
Reverse logistics. The warehouse management system can also manage

returns. If left to ad hoc manual processes, returns can create major inefficiencies
in warehouse operations.
Small parcel management. This is typically a bolt-on to the WMS and

can choose the best method for shipping small parcels, Fed Ex, UPS, and US
Postal Service.
Ninety-five percent of all warehouse management system users employ their

WMS for the first four functions above: receiving, put away, picking, and shipping.
The other functionalities are less used. For example, less than 10 percent use
their WMS for cross-docking assistance. Twenty-four percent use task interleav-
ing. Only 35 percent use a mature yard management system dock management
capability. Fifty percent use profiling, and 70 percent use their WMS to enable
cycle counting and inventory accuracy.
A major challenge that some firms have is multiple warehouse management

systems. This is especially true of companies that have grown by acquisition.
Standardizing warehouse management systems is expensive and time
consuming, and the ROI must be clear to undertake such a major initiative.
Many distribution centers cannot operate at all if their WMS goes down;
therefore there must be a culture of 100 percent uptime for it. Given the scope
of this advancing technology, the WMS should probably go through an upgrade
every five years.
26 Warehouse
Automation
Many Lean advocates have an appropriate mantra as we noted above: eliminate
before you automate. Otherwise waste becomes hardwired into the operation.
That said, technology continues to advance, and automation systems are
becoming increasingly more viable. A growing number of automated material
handling systems have sensors and intelligence that optimize performance.
Even forklifts are getting more sophisticated. Todays smart forklift includes
diagnostics that provide alerts for required service, collision detection, fork
speed optimization, speed controls for busy sections of the DC, and more.
Many processes may need to be controlled and optimized in a distribution

center, from modern conveyor systems to automated guided vehicles and
automated storage and retrieval systems. Maybe in the not-so-distant future
warehouse operators will control automation using hand signals, reminiscent
of Wii video games, or use Google glasses as a guide to their movement in the
warehouse. A worker at a dock might use a simple hand signal captured by
digital image to trigger a conveyor. At a more basic level, a robust Wi-Fi
In order to capability will be important to support wireless devices like rugged tablets.
choose the correct WMS, it Because of the increase in automation, warehouse execution software is also
emerging as a critical systems tool in the large, modern distribution centers.
is important to first identify
Warehouse execution software systems provide the foundation to run automa-
the functionality needed. tion systems, but they need to be interfaced with the warehouse management
system. The warehouse execution software must know the real time statuses
of all the automated equipment in the DC such as conveyors, carousels, and
picking systems, and interface them with the WMS.
In summary, thanks to recent technological innovations, the benefits of ware-

house automation are becoming more accessible. Companies are increasingly
automating processes such as put away, picking, sorting, and palletizing. If
implemented properly, automation can reduce labor and increase productivity.
Automation can also reduce cycle time and provide the capacity for strategic
growth. The large up-front costs require scale, however, and automation systems
can be costly to change once installed. Therefore, the ROI needs to be done
realistically, and the implementation needs to be highly disciplined. That said,
it is a good time to reconsider the preconceived notions about automation,
as technology continues to advance.
Choosing a Warehouse Management System

The annual sales volume of warehouse management systems exceeds one billion
dollars, drawing many players in the space. Warehouse management systems
can be obtained from many software companies, including Manhattan, SAP,
JDA/RedPrarie, High Jump, Oracle, and countless others. It is increasingly com-
mon for companies to use cloud-based systems, Software as a Service (SaaS),
that have been around for about a decade. One survey said that 64 percent of
managing
Warehouse
global supply
Systems
chain 27
DCs have a WMS, but only 8 percent are cloud based. In a recent survey by SCM
World (the supply chain talent development partner for many leading companies),
53 percent of supply chain practitioners surveyed across industry think of cloud
computing as interesting, but having unclear usefulness. This is a more tepid
response than what is heard from IT professionals and tech companies. These
professionals tout the advantages of a cloud-based system, such as:
n Lower implementation cost
n No hardware to buy
n Faster time to payback
n Lower up-front cost by avoid a large licensing fee
n Portability of facility moves
n Automatic upgrades
Potential customers of a cloud-based system must determine the costs over the
total life cycle, and these are not necessarily lower. Also, response time should be
determined with a cloud-based system to avoid unproductive waiting by operators.
Cloud-based systems can be extremely difficult to customize. Warehouse
Management Systems have multiple touch points where the application must
interface with other systems in the DC and outside the DC such as the transporta-
tion management system and the enterprise resource planning system. In addition,
substantial unique configuration of the software could be required to interface
with sophisticated material handling equipment. Cloud based systems may make
more sense for small companies who dont have the resources to deploy a WMS,
or for a larger company that wants one standardized system for multiple sites.
To choose the appropriate warehouse management system, leading companies

first develop a list of requirements. Then they invite prominent WMS vendors to
demonstrate how their software meets those requirements. See it before you
believe it is a good philosophy; software vendors have been known to exaggerate.
A number of elements germane to the selection are:
n Vetted references
n Ability to integrate easily with the existing enterprise resource planning

or legacy systems
n Licensing cost, and ongoing support cost
n Estimated ROI
n Scalability and flexibility to accommodate future requirements
n User friendliness
n Financial viability of the supplier
n Quality of after hours support
n Cost-benefit analysis
n Stable software, unless there is tolerance in the firm for a beta version
n Buy-in of the line organization
28 Warehouse
A scoring system, such as a rubric based on the above criteria, should be used
for software selection. To enhance buy-in, the scoring team should be large and
cross functional. Each element in the evaluation criteria should be listed and
weighted for its relative importance. For each major capability required, the
scoring could be something like:
X Not enough information
1 Does not meet needs
2 Partially meets needs
3 Meets needs but open questions remain
4 Meets Needs
5 Meets and exceeds needs
Once the weighted totals are tabulated and a good dose of judgment applied,
the decision should be clearer.
Change Management
Any new technology implementation always has major change management
issues with which to contend. In several surveys, we have found that supply
chain professionals rank implementation difficulty as follows:
Process 35%
Culture 50%
Tools 15%
In other words, half of the implementation challenge is culture based. Therefore,

the lions share of the challenges comes from cultural issues, not technical issues.
We believe four key principles of change management should be addressed.
1. Sustaining change is harder than the initial implementation. Have a plan
to sustain the change.
2. G
etting buy-in is time consuming. Put communication tasks in your
project plan and plan the time to do it right.
3. Manage expectations carefully.
4. Focus communication on the key individuals.
These four considerations should form the foundation for a documented change
management plan.
managing
Warehouse
global supply
Systems
chain 29
Layout and Space Optimization
P
roductivity declines exponentially if distribution centers become too
crowded and the docks, staging areas, and aisles become congested
with product. In addition, over crowding often drives a company into
extremely expensive overflow warehousing. Therefore, it behooves
any firm to make sure that they have given warehouse space optimization the
priority it deserves.
One durable goods company told us that they had over 8 million square feet
of warehousing space but were experiencing severe space shortages. They
launched a number of initiatives to consolidate and averaged saving just over
10 percent of the space in each warehouse. That amounted to 800,000 square
feet of additional warehouse space, which they avoided having to pay for at
$40.00 per square foot or $32 million. What were the initiatives that this
company used to create to optimize so much warehouse space? Below are
some ideas that worked for them and others.
Eliminate honeycombing. Honeycombing is a symptom of too many slow-

moving SKUs, which consume their space in a sporadic and partial manner,
creating an uneven, honeycomb look to the stacks in the warehouse. Leading
companies group or consolidate slow-moving or obsolete SKUs in remote areas
of the warehouse. They find that combining slow movers in the same area takes
a modest amount of additional labor but saves major amounts of space.
30 layout and
managing riskspace optimization
Racking and mezzanines. If products are not stackable, then racks and
mezzanines can be used to effectively fill the cube of a warehouse.
n Racks need to be safe. Single deep racks not anchored to a wall or
columns are inherently unstable. Lag bolts to the floor are helpful but
not adequate. Back-to-back rack installation is much more stable and
thus safer. The prime risk to racking is accidental collision with forklifts.
n Warehouse racking should contain sufficient capacity to handle every
SKU that cannot be stacked.
n DCs should evaluate the feasibility of mezzanine space over every
area that does not fill the warehouse cube.
Stacking height and product stackability
n Stacking heights should be challenged if the warehouse cube is not full.
One DC had one-ton bags of a chemical product stacked in racks three
high. In addition, they had a major amount of overflow product stored
in trailers in their yard. This generated a huge cost for trailer rental.
Later, they realized that three-high stacking was simply a traditional
paradigm dating back to the warehouses inception rather than safety
protocol. They moved to four-high stacking, which increased the size
of the warehouse by 33 percent, and eliminated millions in overflow
storage cost.
n Sometimes product packaging inhibits the ability to stack product in a
If DCs become warehouse. Product design engineers, in their zeal to reduce cost, can
make it impossible to stack product in a warehouse just to save a few
too crowded and docks, cents on cardboard. This wastes huge amounts of DC cube. Packaging
staging areas, and aisles needs to be even more robust in some environments like warm climates
with high humidity.
become congested with
n Stacking may be inhibited by local statutes like fire codes.
product, productivity
n A
s noted above, strategic use of mezzanines can better utilize the
declines exponentially. warehouse cube, especially when placed over nondistribution functions.
n Warehouse space above 30 feet is likely inefficient to retrieve with lift
trucks and may best be served with an automated retrieval system.
Eliminate nondistribution functions. Nondistribution functions are
often carried out in a DC, such as:
n Customization of units with unique branding and labeling, packaging,
final assembly, and kitting;
n Postponement activities;
n Handling of returns, refurbishment of damage, repackaging, and

storage of components to support these functions;
n Using maintenance areas, and space for lift truck parking and battery
charging, as well as maintenance supplies;
n Offices.
managing layout
risk in the
andglobal
space optimization
supply chain 31
Step one is to document the space and warehouse cube allocated to activities
such as these. Then ask if there is a better way that wastes less of the DC cube.
For example, these activities might be placed in or under mezzanine areas to
better consume the DC cube.
Warehouse layout: docks and aisles

n How wide should aisles be? If fourteen-foot aisles are traditionally used,
perhaps twelve-foot aisles should be considered. Aisles take up a major
amount of DC cube. Aisles should be as wide as necessary, but no wider.
n Many software tools are available, from sophisticated computer aided
design systems (i.e. SIMCAD) to tools anyone can download from
the Internet. Some can produce a three-dimensional, digital layout of
the warehouse, and then model and optimize space based on a set of
constraints. Various layouts can be simulated and animated. Three-
dimensional simulations can be built to allow managers to identify
problems before they are hardwired in place.
Receiving and Shipping. Receiving and shipping functions, although

critical to the efficiency of the overall warehouse operation, often have either
too much or too little space allocated to them. Some up-front analysis is in or-
der. To properly design the receiving and shipping areas, one must know:
n Type of material to be shipped and received,
n Frequency of activity now and in the future,
n Nature and numbers of vehicles,
n Types and numbers of docks,
n Staging area required, and
n The Pareto distribution. (i.e. 80 percent of the activity will be

generated by 20 percent of the items)
With such data, leading companies can use a tool to simulate dock activity to
make sure that any bottlenecks are identified and the proper amount of space
allocated.
32 layout and
managing riskspace optimization
Network Optimization
S
everal supply chain professionals have told us, and we agree,
If you havent completed a network optimization study recently,
you are probably leaving a major savings opportunity on the table.
A network optimization answers questions such as:
n How many DCs should you have?
n Where should they be located?
n Which customers, stores, or locations should each serve?
Many retailers routinely tweak the stores served by each DC with multimillion-
dollar savings annually. Both retailers and manufactures can evaluate and
change the structure of their DC network to produce major savings. Some
firms do a network refresh on a periodic schedule, like every two to five years.
Some very powerful software tools are available to assist in this endeavor.
Most are optimizers, which can minimize cost while satisfying a series of
constraints, such as those from customer service. Some also use a simulation
capability to accommodate more extensive and realistic data sets, as well as
probabilities. Optimization studies can get very large for a complex network.
Some companies attempt to consider a wide range of variables, such as the
location of suppliers, customers, and factories. One companys model included
a mind-boggling: 12,089 variables; 58,552 constraints; and 2.9 trillion input
parameters. Even with modern computing power, the data set on optimization
studies must often be simplified. Fortunately Moores Law, the idea that
computing power doubles every two years at no additional cost, is gradually
resolving that problem.
Llamasoft is a good example of a leading provider of network optimization

software. Most companies use outside expert assistance, such as consultants
or a 3PL, when they conduct studies like this. A few leading companies have
in-house teams often staffed with people who have industrial engineering back-
grounds. One company has a supply chain engineering department, another
has a global analytics group, and yet another has an in-house strategy group to
perform such studies. Many companies do a network refresh study on a routine
basis, approximately every two to five years. In between, analytical people can
also do quick and dirty studies effectively if the scope is limited.
Many organizations are reevaluating their networks in light of the Internet boom
They study whether website orders should be served out of store, regular DCs,
or specialized DCs.
network
managing risk in the globaloptimization
supply chain 33
A network optimization study is as much art as science. A great deal of man-
agement judgment must be applied to successfully complete an implementable
plan. And of course, once a general location for a DC is selected, many other
factors come into play to select a specific site such as:
n Proximity to manufacturing plants
n Distance to market/customers
n Real estate/leasing conditions
n Local cost of living
n Available workforce, skills and flexibility
n Local transportation, both inbound and outbound
If you havent Network optimization studies are traditionally difficult and quite resource
intensive. They are challenging for many reasons:
completed a network
n Organizational boundaries are crossed
optimization study recently,
n Data requirements are massive
you are probably leaving a
n Often the data must be corrected (Most companies have extensive
major savings opportunity errors in their data.)
on the table. n Projects are large and require dedicated resources
n Uncertainty exists in many variables
n Implementation requires extensive change management
A good rule of thumb is that assembling and cleansing the data will take
70 percent of the project time. As one experienced executive noted, It will
take at least twice as long as the most pessimistic person thinks. Therefore,
management of scope for such projects becomes critical.
There are often unintended positive benefits to a network optimization study.

For example, to feed the model, one analyst needed data on loadabilty for
a certain small boat manufacturer. (How many units were loaded in each
truckload?) When he learned two boats were loaded in each truck, he naively
asked, Why so few? That simple question motivated people in the firm to
challenge the paradigm and eventually increase that number to six units per
truck. At another company, a large number of errors had been discovered in the
data and many numbers had to be corrected for the model. These data were
used in other applications for important company decisions. By cleaning the
data, other applications also performed much more accurately.
34 networkrisk
managing optimization
Safety and Security
W
hen asked for their highest priority, warehouse professionals
more often than not say safety is number one. Safe DC
operations require a combination of mindset/culture, metrics,
and processes.
Safety Mindset/Culture
Everyone in the facility every day needs to think safety. That starts at the top
when senior executives state openly and often, safety is our number one
priority. Norfolk Southern Railroad has a rule: Every meeting in this company
will begin with a safety briefing. Another firm calls this a safety share at the
beginning of every meeting. Although most would consider that overly tedious,
it sends a message to every employee, every day. Other companies feel they
can make the point with monthly focused safety meetings. Some firms put safety
in their corporate mission statement. Some state it clearly in their corporate
values. Some have an official safety strategy which they update every year.
Honeywell requires that employees and visitors watch a safety video, and
employees go through regular safety training. Once completed, the visitor
receives a card that must be shown each time entering the facility. A safety
briefing is appropriate for all visitors to DC facilities, including basic information
such as how to exit the building in an emergency. One firm briefed visitors on
the way to avoid any toxic fumes, telling them, When you exit, look at which
way the flags are blowing and proceed up wind.
managing risk in thesafety

globaland
supply
security
chain 35
37
Safe operations relentlessly require people to wear the proper clothing, including
safety glasses, hearing protection, orange vests, and when appropriate gloves,
sleeves, and steel-toed shoes. Visitors on a simple tour are no exception to these
dress code rules.
As mentioned earlier, Lean operations often add a sixth S for safety to their
5S process, further enhancing the safety mindset. One corporation has a safety
wall in each DC. These are large, twenty-five-foot long displays showing safety
stats and celebrating milestones. Another company has large safety celebrations
when they reach a milestone with no lost time injuries. They said they spend
$25,000 per DC on a cook out and give-away merchandise. One firm encourages
associates to put up pictures of their loved ones, employing a Do it for them
campaign. All of these actions contribute to a culture of safety.
Actions speak louder than words. Its never acceptable to sacrifice safety when
some other objective becomes paramount. Labor productivity, output and/
or quality are all critical to survival, but employees can never see safety take a
backseat to any of them.
Temporary employees represent more of a challenge. One company told us that
temporary employees experienced reported safety problems 40 percent higher
than regular employees. When asked why, the answer seems to be a combina-
tion of too little vetting (drug screening, previous work history) and too little
training.
Safety needs to be everyones responsibility. One company selects a safety
advocate for each facility. The job can be done on a rotation basis, and the
individual should be accountable to oversee training, metrics, and safe processes.
Another firm has a safety committee in each DC led by an hourly associate.
They believe safety is all about total employee involvement and ownership. This
firm required all 10,000 of its employees to take five modules of safety training.
Leading companies understand that safety cant be punitive or else the associ-
ates will not participate. The hourly associates must own safety and aggressively
report unsafe acts.
When considering safety, the subject of hazardous materials cannot be ignored.
A material safety data sheet provides workers and emergency personnel with
procedures to safely work with that substance. Material safety data sheets
should be kept up to date with information such as physical data (melting point,
boiling point, flash point), toxicity, health effects, first aid, reactivity, storage,
disposal, protective equipment, and spill-handling procedures.
Safety Metrics
Safe operations have visible metrics along with serious accountability for them.
Common safety metrics include:
n OSHA recordables and lost time events
n Corrective action completed to address safety problems
36
38 safety and
managing security
n Safety training completion
n Safety survey results
n Time since last incident
Leading corporations track these metrics over time and make them highly
visible throughout the operation.
Tracking the most common and the most severe injuries to determine their
causes is important. For example, the most common injuries may be musculo-
skeletal injuries caused by lifting, pushing/pulling, slips, trips, and falls. The
most serious injuries often occur when someone is caught between or hit by
equipment. A fatality is horrific and often results from what is initially perceived
as a freak event. One company had a fatality when someone simply jumped
off the end of a truck dock. At the root of any such horrible occurrence is the
opportunity to make fundamental safety changes.
Safety Processes
Safe operations have safe processes. Safety audits should be performed on a
When asked for periodic basis. Organizations should be relentless about meeting and exceeding
all OSHA standards. A few things to look out for are as follows:
their highest priority,
n Unsafe use of forklifts (People need to be separated from lift trucks
warehouse professionals by guard rails whenever possible.)
more often than not say n Electrical dangers
safety is number one. Safe n Improper ventilation or handling of hazardous materials
DC operations get that n Improper stacking
n Failure to use personal protection equipment

way from a combination of
n Failure to have strict lockout/tag out procedures for equipment
mindset, metrics, culture,
being serviced.
and processes.
n Inadequate emergency systems for fire or injury like chemical burns
n Improper storage and handling of hazardous materials
n Improper procedures for repetitive motion or lifting
n Unprotected pinch points around conveyors for example
n Bad general housekeepingcluttered aisles and docks
n Failure to block or protect dock doors
n No cages over ceiling lights to prevent glass from dropping
n Failure to adequately prevent explosion risks like smoking around

charging stations
n Poor lighting
n Failure to protect pickers in stacks with enclosed cages or a failure

to continually wear a harness on high-rise vehicles
managing risk in thesafety

globaland security
supply chain 37
39
Security
Security to avoid theft and pilfering is more important for some products than
others. Truckload value does not have to be astronomical to merit security
measures. Dishonest employees can defeat the most elaborate security system
for high value items or high theft items like electronics, liquor, or drugs. Thats
why front-end screening must be very aggressive in such facilities, even including
polygraph or voice-stress analysis. High theft items must be placed in their own
secure areas.
Only certain employees should be able to enter secure areas, and/or break
seals. The temptation grows once cartons are opened. Modern, hard to defeat
electronic alarm systems are a must. High fences, even guard dogs, around a
warehouse perimeter help. There should be a rigorous sign-in/sign-out proce-
dure and a badging program. High-resolution cameras, metal detectors (for
everyone, even visitors, and the boss), and turn styles can be essential security
devices where appropriate. There should only be one way in and out of a DC,
barring an emergency situation, and that entrance/exit should have detectors.
Trailer yards can also be a weak point. Tractors and trailers have been stolen
from secure fenced-in areas.
Companies should hire a good security expert to oversee security systems.
One company has loss prevention personnel on site around the clock to man
cameras, administer entries and exists from the facility, and inspect outbound
trailers. Sources may be people with backgrounds in government agencies
like the FBI, Secret Service, or military police, or people who have worked for
security firms like ADT.
On a global basis, the Customs-Trade Partnership Against Terrorism (C-TPAT)
is a voluntary supply chain security program led by U.S. Customs and Border
Protection. It focuses on improving the security of private companies supply
chains with respect to terrorism. The program was launched in November 2001
with seven initial participants, all large US companies. Today, the program has
over 10,000 members. The participants in the program account for well over
half of all merchandise imported into the United States. Companies who achieve
C-TPAT certification must have a documented process for determining and
alleviating risks throughout their international supply chain. These companies
are considered low risk, so they receive expedited cargo processing and fewer
customs examinations.
38
40 safety and
managing security
People
H
aving the right people in the right jobs is key. Leading companies
excel in five areas when they manage talent, and their DC
operations talent management should be no exception. The five
steps in a good talent management process are: assess needs,
identify job candidates, hire, train and develop, and retain.
These principles are detailed in the University of Tennessees white paper
Talent Management for the Supply Chain (coming Spring 2015).
As was mentioned in the section on Lean warehousing, it is essential that all
associates in a warehouse operation be engaged and involved in continuous
improvement. Some companies have success with self-directed workforces.
The supervisors become problem-solvers, and the associates take on routine
supervisory duties including hiring, work scheduling, and job rotation. Although
more challenging, this has also been successfully implemented in unionized
environments.
Leading companies invest in training for new employees as well as ongoing
training. Leaders also find a way to retain good employees and minimize
turnover; they pay a fair wage for the area, show appreciation, and foster an
atmosphere of ownership by involving employees in DC improvements.
Personnel planning for DC operations is a large and complex task, and it is
beyond the scope of this white paper. Topics such as labor standards and
measurement, labor incentive systems, union issues, work hours and shift
people
41
rotation are best covered in other sources, such as Gwynne Richards book
Warehouse Management, A Complete Guide to Improving Efficiency and Mini-
mizing Cost in the Modern Warehouse.
Third Party Logistics Operators

An increasing number of companies use third party logistics to manage their
DC operations; this includes hiring and managing the hourly associates. There is
a continuing trend toward more firms outsourcing their DC operations to 3PLs.
Third party logistics firms can do many additional things such as:
n Reduce future cost by leveraging the 3PLs expertise and technology
n Improve customer satisfaction

It goes without n Provide a contingency plan for union issues
saying that having the right n Reduce risk
people in the right jobs is the n Reduce current cost
key to everything. Leading n Provide global expertise, including documentation, customs, and
duty optimization
companies are excellent at
Great people, management and hourly associate personnel, are essential to
managing talent, and their
accomplishing those goals. The survival of a 3PL depends on the caliber of the
DC operations should be employees. Many 3PLs partner with an employment company. These partner
agencies thoroughly vet personnel, as well as provide some training.
no exception.
Hourly Associates
Often, new hourly associates are temporary workers for ninety days before
becoming full time employees. Sometimes the firm or 3PL pays less than
competitive wages during this initial period. This practice is counterproductive
in that it often leads to more turnover, which can be over 100 percent for
temporary workers, and fewer ideas for improvement brought forward by the
associates. Of course higher wages dont automatically lead to better results.
They must be coupled with the right culture and processes.
Firms that develop and retain great management talent have a clear advantage
over those who dont have a formal plan. One professional observed that many
professionals ask, What if we train and develop our management team and
hourly associates and they leave? His retort, which we believe is the correct
question, What if we dont develop them and they stay?
Many DCs need an extremely flexible workforce that is comfortable with
highly variable working hours. The work mirrors the shipping pattern, and often
shipping/demand patterns are highly variable.
42
40 people risk in the global supply chain
managing
Kaizen
Hourly associates always provide the best source for kaizen, or continuous
improvement, as discussed in the section on Lean. One company instituted a
structured suggestion program and received over 500 employee suggestions
in nine months. The suggestions lead to savings of hundreds of thousands of
dollars and countless safety improvements. Supervisors need to focus on being
problem-solvers rather than bosses. Sadly, not all supervisors can get with this
program. Another company noted that if you dont involve people, they will
focus their substantial brainpower on other things, and in particular they will
work very hard to not work hard.
Management Personnel
Each professional in the organization should have a personalized development
plan that is tracked. Some companies invest heavily in their in-house development.
For example, Kenco has a leadership development program with quarterly
one-week training sessions over an entire year. The great majority of the
programs graduates have stayed with the company and have been promoted.
Kenco also annually sends two employees with high potential to the University
to Tennessee Global Supply Chain executive MBA program. Modern executive
MBAs like these can cost upwards of $100,000, but they have been proven to
generate ample ROI for the sponsoring company. Progressive corporations view
people as an asset, not an expense. Not only are people an asset, but also they
can and should be an appreciating asset. Even in tight times, a training budget
needs to be liberal and protected.
managing risk in the global supply

people
chain 43
41
Sustainability
T
he green revolution is upon us. More often than not, the supply chain
is at the forefront of these organizational changes. The extended
supply chain generates much of the carbon emissions for most firms,
so it makes sense for the supply chain team to lead the charge on
corporate sustainability. Clearly warehouse operations are key to an overall
supply chain sustainability effort. In one large company, the senior vice president
of supply chain reports directly to the corporate executive vice president of
sustainability.
Distribution Centers can do many things to be green, and fortunately many of

them have a financial payback. Most supply chain professionals pursue green
initiatives to cut costs, although public relations and brand image can also play
a role. Some common green initiatives are:
n C
ardboard recycling, which can turn into a lucrative business for
some companies
n Plastics recycling and minimization of the use of shrink-wrap
n Moving from propane to electrical lift trucks (The next step may be fuel
cells that run on hydrogen and emit water vapor. Today the ROI on the
required cost and infrastructure is problematic, but that should change
over time. Many companies are running pilot programs with fuel cells.)
n Working with vendors to reduce packaging materials (Some DCs must
have large trash-cutting operations to remove excess packaging. A large
industry consortium has been formed with the goal of eliminating inner
packaging material, working with the outstanding packaging engineering
program at Michigan State University. Twenty-five companies recently
participated in a conference on that topic.)
n Returnable and especially collapsible containers
n Reuse of wood pallets, even making mulch with worn out pallets
n Caulking and weather stripping around windows and doors, seals around
dock doors, and appropriate insulation
n Automatic adjustments to the HVAC system when the building is not
in operation
n Natural lighting such as skylights or solar panels. One DC in California
said that they have solar panels covering the entire 700,000-square-foot
roof. Several firms said that solar panels have a very low ROI, but seem
like the right thing to do
n Motion detectors for lighting in low traffic areas and photo sensors for
outdoor lighting
n Less lighting where it is not needed
42
44 sustainability
The green n Efficient lighting systemslighting is the largest energy cost in most DCs
(LED fixtures with intelligent integrated controls, sensors, and reporting
revolution is upon us and can save an estimated 50 percent of lighting costs. There can also be
both local and federal tax incentives for projects like this. The payback
more often than not, the
on the investment is generally about eighteen to twenty-four months.
supply chain organization The ROI depends on a range of factors such as number of shifts, ceiling
is at the tip of the spear height, the local cost of electricity, incentives, and activity in the various
zones of the warehouse. Intelligent motion sensors also save lighting
in many organizations. cost. After no motion for a specified time the light can dim and then later
shut off completely.)
Often lighting is the easiest energy issue to address, but it is important to track
all energynot just electricity. Electrical usage, natural gas, propane, water, and
sewer, should all be tracked and monitored, with usage goals set for each.
Conclusion
T
he incredible scope of DC management clearly requires the best and
brightest of management personnel. This job demands innovation,
technical acumen and human resource skills. DC managers must
manage upward to respond to very tough management goals and
customer expectations. They must also manage downward to engage all
employees in a journey of continuous improvement. The relentless challenge for
companies is to find and retain talented people who can manage the incredibly
difficult, ever-changing DC operations of the future.
About the Global Supply Chain Institute http://globalsupplychaininstitute.utk.edu/

The Global Supply Chain Institute at the University of Tennessee has one of the premier
supply chain programs in the country. UT offers undergraduate, MBA, and doctoral
student education within the field, and its thirty supply chain faculty members are ranked
No. 1 for academic, supply chain research productivity.
About Kenco www.kencogroup.com

Kenco is the largest woman-owned, third-party logistics company in the United States.
The company provides fully integrated logistics solutions that include warehousing,
distribution, asset and non-asset based transportation, complex information technology
systems, engineering, real estate, and material handling equipmentall engineered for
operational excellence.
sustainability
45
Distribution Center Evaluation Tool
Note: this tool applies only to larger DC operations
Please rate each item on a 110 scale, where 10 is world-class
Receiving Warehouse Management Systems
1. Do you receive ASNs on most of your inbound 16. Do you have a modern WMS in place?
receipts?
17. Do you effectively use an appropriate level of
2. Do your suppliers deliver high quality shipments on the WMSs functionality?
time, with accurate counts?
3. Do you have a robust process to manage returns?
Layout and Space Optimization
4. Do you quickly put product away and in a place 18. Do you effectively utilize the full cube in your
best for picking? DC locations?
Picking/Order Fulfillment/Shipping Network Optimization
5. Do you have an excellent profiling/slotting process 19. Do you do a network optimization study at least
to put SKUs in the best location for picking? every five years to refresh your supply chain
6. Do you have an appropriate level of automation and network?
systems to accurately and efficiently fulfill orders?
Safety and Security
7. Do you have an excellent process in place to fill
Internet orders? 20. Do you have an intense safety mindset and
8. Do you maximize the cube when you load trailers? culture?
21. Do you have visible, impactful safety metrics?

Lean Warehousing
22. Do you have safe processes?
9. How advanced are Lean philosophies and
processes in your DCs? 23. Is your DC secure from pilferage?
10. Do you heavily involve the hourly associates in your People
improvements efforts?
11. Do you have a robust Six Sigma process in place? 24. Do you have a complete talent management
process in place for your DC organization
Cross Docking including the five elements of: assess, identify,
hire, develop, and retain.
12. Do you have a mature cross-docking process,
appropriate for your operation? Sustainability
Metrics and Planning 25. Do you have an environmental strategy in place
for your DC operations?
13. Do you have a documented, multi-year strategic
plan for your DC operations?
Total Points
14. Do your metrics have a logical framework, along
with appropriate goals?
15. Do you have a balanced set of metrics covering
safety, people, customer service, cost, and asset
management?
How did you do?

0100 points: Your DC operation is deficient. You should benchmark 150200 points: You have a good to excellent DC operation. Build on
best in class operations and develop a multi-year plan to upgrade your your many strengths. But also honestly assess and address your
operation. weaknesses.
100150 points: You have an average DC operation. You have a solid 200+ points: You have an outstanding, approaching world-class DC
position to build on. You now need a multi-year plan to improve your operation. Make sure you keep it that way. Everyone is raising the bar
DC operations. everyday. Keep challenging yourself to remain at the top.
46
48
44 Distribution
managing risk center evaluation
in the global tool
supply chain
a
A Final Note
We hope you have found the material in this white paper helpful
and useful. We at the University of Tennessee are committed
to translating our No. 1 position in academic research into
information useful for practitioners. We believe the real world
of industry is our laboratory. Its why we have the largest Supply
Chain Forum in the academic world, with over 50 sponsoring
companies. We are always looking for industry partners to assist
us in this journey. Let us know if you are interested in being one
of our valued partners.
J. Paul Dittmann, Ph.D.
Executive Director, The Global Supply Chain Institute
The University of Tennessee
jdittman@utk.edu
O: 865-974-9413
C: 865-368-1836
gsci.utk.edu

Haslam College of Business
310 Stokely Management Center

Knoxville, TN 37996
865.974.9413
48 managing risk in the global supply chain

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The ABCs of DCs

Distribution Center Management:

GLOBAL SUPPLY CHAIN INSTITUTE

Number Five in the series | Game-Changing Trends in Supply Chain

2 managing risk in the global supply chain

At the university of tennessee

Bending The Chain

First AnnuAl report by the

310 stokely MAnAgeMent Center

Global Supply ChainS

a report by the Supply Chain

L ogistics professionals who operate distribution centers (DCs) have

Management constantly 6. Warehouse Information Systems

challenges them to cut cost, 7. Warehouse Layout and Space Optimization

which basically means 8. Warehouse Network Optimization

doing more with less. 9. Safety and Security

World-class receiving is highly facilitated by the use of advanced shipment

4 Receiving and put away

Best practice companies also use integrated engineering standards in their

managing risk inReceiving

A recommended process for managing returns

n Measure the full cost of returns, which most companies grossly

n Review product design, packing, and consumer instructions.

n Manage better customer education and expectations on the front

n Segment returns with a different approach for each category.

n Develop an operations plan to minimize the processing cost.

n Put in place a liquidation plan to maximize asset recovery; a decision

Receiving and put away 24%

Order picking 54%

To optimize warehouse efficiency, the DC needs to focus on and minimize three

Profiling/Slotting (Zoning or ABC Zoning)

We saw a good example of a profiling operation at an office supplies retailers

n Paper pick list 40%

n Pick to light 38%

n Carousels/conveyor systems 25% Many DCs

n Automated storage and retrieval systems 5%

Installing a voice-picking system requires a significant investment, perhaps

Automated systems require a major capital investment. So without a long

Goods-to-Person Picking (KIVA)

Robotics and AGVs

Manual/Paper Based Systems

How to Select the Right Picking System

Decision criteria Decision criteria Picking Picking Picking

Operating Weight Ranking Ranking Ranking

Capital investment Weight Ranking Ranking Ranking

Integration with Weight Ranking Ranking Ranking

Accuracy Weight Ranking Ranking Ranking

Safety Weight Ranking Ranking Ranking

Damage Weight Ranking Ranking Ranking

managing risk in the global

are being seen with Lean Total Employee Involvement

Standard Work and Making Problems Visible

Total Productive Maintenance

Eliminate Before You Automate

managing risk in the global

Value Stream Mapping

managing risk in the global

1. Start with your customers; understand their needs

Establishing collaborative relationships with suppliers and customers 7.91

Advances in supply chain visibility 7.80

Professional development, training, education 6.71

Helping with revenue generation 6.62

Managing the global supply chain 6.55

n Measure the full cost of returns, which most companies grossly

n Manage better customer education and expectations on the front

n Put in place a liquidation plan to maximize asset recovery; a decision

1. Start with your customers; understand their needs

n Order fulfillment time vs. standard

n Incorrect paper work, including the invoice

n On time shipment, or on time delivery to a customers service window

n Professional development plans in place

n Education and training completed

n No hardware to buy

n Faster time to payback

n Lower up-front cost by avoid a large licensing fee

n Portability of facility moves

n Ability to integrate easily with the existing enterprise resource planning

n Scalability and flexibility to accommodate future requirements

n Financial viability of the supplier

n Quality of after hours support

n Buy-in of the line organization

n Handling of returns, refurbishment of damage, repackaging, and

Receiving and Shipping. Receiving and shipping functions, although

n Frequency of activity now and in the future,

n Nature and numbers of vehicles,

n Types and numbers of docks,

n Staging area required, and

n The Pareto distribution. (i.e. 80 percent of the activity will be

n Proximity to manufacturing plants

n Real estate/leasing conditions

n Local cost of living

n Available workforce, skills and flexibility

n Local transportation, both inbound and outbound

on the table. n Projects are large and require dedicated resources

n Uncertainty exists in many variables